Rupee and Market May make a ‘vote’ on Rexit tomorrow

Anxiety about how the Rupee and stock market will respond to the news of Raghuram Rajan’s exit is looming. Though Rajan was not a friend of market volatility makers or the so called speculator classes who loved low interest rate, his feat of producing stable macroeconomic fundamentals won investors mind.

But the Chicago university professor’s exit may raise doubts in the minds of investors who prefer the long term stability of the economy.  Many foreign commentators who sells their ideas to global investors describe the entire issue as a victory of bad politics over sophisticated economics. In this context, the Rexit may leave doubt among investors about India’s refrom credentials. 

More affected will be the foreign exchange market. Considerable selling in equities and bonds during the initial hours may bring the domestic currency under pressure. Especially in the context of Rajan’s achievement of keeping the value of rupee stable despite strong faults in other EME currencies, the rupee and stocks may go downwards.

According to a Reuters report, traders predict the rupee would likely fall by 0.15 to 0.20 rupees per dollar during initial trading.

For investors, Rajan was a confidence factor. Seeing him on board of the economy, investors anchored their expectations. If market goes south, Rajan himself and the Finance Minister may come out with soothing statements to calm the investors.